Of course, debt collectors are thrilled that the CFPB’s funding was ruled unconstitutional

A consequential court ruling this week has put the future of the Consumer Financial Protection Bureau (CFPB) in serious jeopardy, and you can count your friendly neighborhood debt collector as being among those who are elated.

After a three-judge panel on the 5th Circuit Court of Appeals ruled on Wednesday that the bureau’s funding structure violated the Constitution’s congressional appropriations clause, ACA International—the trade group that represents the debt-collection industry—was quick to voice its support for kneecapping the federal agency that is tasked with keeping it in check.

“The congressional appropriations process was contemplated to create a strong balance of all stakeholders,” Scott Purcell, ACA’s chief executive, said in a statement about the ruling. “Our advocacy focuses on having a seat at the table, and the CFPB of late has not involved all relevant parties in its decision-making nor relied on accurate, current data to support its consumer protection initiatives and regulations. . . . If the congressional appropriations process is required for bureau funding, it will be one step to mitigate the bureau’s actions that appear to be outside the scope of its mission.”

Wednesday’s ruling has alarmed longtime supporters of the CFPB, including Senator Elizabeth Warren of Massachusetts, whose original proposal while she was a Harvard law professor in 2007 is credited with its creation. “This reckless decision could stop the CFPB from enforcing rules that prevent debt collectors from harassing you,” Warren tweeted this week.

By design, the CFPB gets its funding through requests made to the Federal Reserve, rather than through the traditional purse strings of Congress, a structure laid out in the Dodd-Frank Act that was meant to insulate it against the whims of party politics. However, a group of payday lenders fighting a CFPB rule that restricts their access to bank accounts argued that the agency’s funding mechanism was unconstitutional, and the 5th Circuit panel agreed.

Crucially, the rule itself was not deemed inherently invalid by the judges—just that the CFPB had no legal means of enforcing it without unconstitutional funding. The ruling’s immediate impact will be felt across the 5th Circuit states of Mississippi, Louisiana, and Texas. However, it could also have broader implications for challenges against the CFPB elsewhere and could even impact other agencies that don’t receive funding through congressional appropriations. As lawyers with Ballard Spahr pointed out in a blog post, that includes such entities as the FDIC, the OCC, and others.

What happens next isn’t entirely clear, although the CFPB is expected to appeal and the funding question could eventually head to the Supreme Court.

“There is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills,” a spokesperson for the agency told Fast Company. “Other federal financial regulators and the entire Federal Reserve System are funded that way, and programs such as Medicare and Social Security are funded outside of the annual appropriations process. The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”

Republicans have long been gunning for the CFPB, which was created as a critical enforcement tool against financial-industry malfeasance in the wake of the 2008 financial crisis but is seen as government overreach by many conservatives. Nevertheless, the agency says its enforcement efforts have resulted in more than $13 billion in relief for consumers, including monetary compensation, reductions in premiums, and canceled debts.